Copper Snaps 4-Day Decline on Speculation Drop Was Exaggerated
2006-06-14 06:55 (New York)
By Katy Watson
June 14 (Bloomberg) -- Copper rose for the first day in five
in London on speculation the biggest four-day decline in at least
20 years has left the metal cheap, given the outlook for
production shortages. Nickel and zinc also advanced.
China, the world's largest metal user, said today industrial
production rose 17.9 percent in May, the biggest gain in two
years. Copper fell 16 percent in the past four days on concern
rising global interest rates may curb economic growth and demand.
``Nothing goes in a straight line,'' said Jeremy Goldwyn,
global head of industrial commodities at Sucden U.K. Plc in
London. ``We would expect pockets of corrections and support.''
Copper for delivery in three months rose $55, or 0.8 percent,
to $6,625 a metric ton as of 11:55 a.m. on the London Metal
Exchange. The metal earlier gained as much as 3.1 percent to
$6,775. Nickel gained $375 to $17,900 and zinc advanced $50, or
1.7 percent, to $3,010.
Industrial output in China rose to a record 706 billion yuan
($88.2 billion) in May. Adjusting for distortions caused by the
timing of the week-long Lunar New Year holiday, the increase was
the biggest since April 2004. Rising consumer spending and surging
exports have kept production in the world's biggest maker of steel
and mobile phones expanding at more than 16 percent each month in
the past year, double the pace of India and South Korea.
``These are fabulous figures out of China; that's important
in commodities, the fundamental story, not the hedge funds which
are moving money in and out,'' said Roland Jansen, chief executive
officer of Liechtenstein-based Mother Earth Investments AG. ``We
do think that at Christmas time, commodity prices will be higher
and will continue their gradual uptrend.''
Further Correction
Still, the recent decline in commodity prices may not yet be
over, said Jansen.
``We see a lot of hedge funds, with a stroke of the key
board, can move billions in, and now, out of the markets.''
Global copper production may decline by 226,000 metric tons
this year because of disruptions at mines, Citigroup Inc. said in
a June 11 report, raising its estimate by almost half.
Copper production may lag behind consumption by 34,000 tons
this year, John Hill, Citigroup's analyst in San Francisco, said.
Citigroup, the world's biggest financial-services company, said on
May 8 that mine disruptions may cause a production loss of 155,000
tons.
Freeport-McMoRan Copper & Gold Inc., which owns the world's
second-largest copper mine in Indonesia, last week cut its second-
quarter production forecast by 16 percent because of high clay
content in some ore. Mexico's La Caridad mine, controlled by Grupo
Mexico SA's Southern Copper Peru Corp. unit, suspended production
after a strike started March 24. The stoppage spread to the
company's Cananea mine on June 1.
Strong Fundamentals
``Underlying the copper businesses is a very strong
fundamental supply/demand situation,'' Freeport-McMoRan Copper &
Gold Chief Executive Officer Richard Adkerson said yesterday.
``It's very difficult in today's world to find new supplies and
companies are having difficulty in meeting production targets.''
Among other metals traded on the LME, tin was unchanged at
$7,700 a ton and lead dropped $19 to $976. Aluminum rose $11 to
$2,466.
Today's increase in prices ``is a technical rebound from
recent losses,'' said Tobias Merath, an analyst with Credit Suisse
Group in Zurich. ``The correction may go further, but we think
things will settle down in the coming weeks.''
Rate Impact
Copper and other industrial metals have fallen in recent
weeks, as banks across the world raised interest rates in order to
rein in inflation. The European Central Bank raised its benchmark
interest rate on June 8 for the third time in six months. South
Korea raised its key rate the same day, followed by India and
South Africa. At least four Fed officials said last week they're
concerned about inflation.
``The biggest factor behind movement in commodities markets
is the Fed's monetary policies,'' said Toshio Aoki, chief
executive officer of Stat Arb Pte. ``If the Fed raises interest
rates, then revenue of U.S. companies declines, and corporate
restructuring happens. Then consumption would slump, and exports
from China would fall. Their demand for raw materials then
declines, and commodity prices drop.''
--With reporting by Chia-Peck Wong in Singapore, Meggan Richard in
Tokyo and Benjamin Rahr in London. Editors: Casey (jwc/jdg). |
